Owners of holiday rental properties in Wales could receive significant council tax refunds under proposals being considered by Powys Council aimed at alleviating the financial impact of recent changes to tax rules. The proposals, set to be reviewed at a full council meeting next month, would allow discounts for self-catering holiday lets that fail to meet the minimum lettings requirement mandated by Welsh government regulations introduced last year.

In 2023, the Welsh government empowered local authorities to impose a council tax premium of up to 300% on second homes, while simultaneously tightening eligibility criteria for properties designated as holiday lets. Previously exempt from council tax surcharges and benefiting from lower business rates, self-catering properties must now be available for holiday use for at least 252 days annually and actually let for a minimum of 182 days to qualify for these preferential rates.

Many holiday lets, however, have found meeting the 182-day lettings threshold impractical. In response, Powys Council is considering using discretionary powers to issue council tax discounts to properties falling short of this rule. Should the council approve the plan, the discounts would be applied retroactively to 2023, generating refunds for owners who have already paid surcharges. The council estimates this could affect around 250 properties and result in refunds totaling approximately £1 million.

The tightening of rules forms part of a broader effort by Welsh authorities to reduce the number of homes used as short-term rentals, in an attempt to improve housing availability and affordability for local residents. Currently, second home owners in Powys face a 100% surcharge on council tax, while Bridgend County Borough Council imposes a surcharge rising to 300% after two years, the highest rate in Wales.

The Welsh government is also consulting on updated regulations addressing self-catering businesses unable to meet the 182-day requirement. Previously, groups of holiday cottages were permitted to pay a single, combined business rate. Now, if such properties fail to qualify for business rates, each unit is levied individual council tax charges, including second home surcharges, leading to some bills reportedly ranging from £30,000 to £55,000.

The Professional Association of Self-Caterers has raised concerns about the financial and psychological strain the new rules place on holiday let operators. Nicky Williamson of the association referred to “backdated bills of up to £55,000” for established businesses, highlighting the severe mental health impacts caused by the unexpected liabilities.

The Welsh government declined to comment on the proposals being considered by Powys Council. The outcome of the council’s deliberations next month will provide further clarity on potential relief measures for affected holiday let owners.